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Energy for Sustainability

Randolph & Masters, 2008

Chapter 17:
Energy Policy:
International and U.S. Federal
Market Transformation Programs
 International Agreements
 Montreal Protocol
 Kyoto Protocol
 Other National Policies
 European Union
 Germany
 U.S. Federal Energy Policy
 State Energy Policy
 Local Energy Policy
Goal of Public Policy
 Accelerate Market Transformation
 Advance Techno-Economic Solutions:
Technological Innovation
 Advance Social Solutions: Influence Behavior
of Investors and Consumers
Energy Market Transformation Policies and
Programs
 Regulations
 Product Efficiency Standards
 Production Standards
 Utility Regulation and Market Reform
 Environmental Regulations
 Economic and Financial Measures
 Tax incentives and disincentives
 Financing Assistance and Risk Insurance
 Research and Development Funding
 Procurement
 Energy Assistance
 Energy Planning and Information
 Energy Planning
 Information and Training
 Capacity Building, Partnerships, and Voluntary Action
 Voluntary Agreements and Partnerships
 Capacity Building and Civil Society
Kyoto Protocol
 At least 5% reduction of GHG emissions from 1990 levels
 Annex I Parties: 40 developed countries plus EU’s 15 states which
aim to reduce emissions to 1990 levels.
 Annex II Parties: the most developed countries in Annex I which
also commit to help support efforts of developing countries.
 Countries with economies in transition (EITs): an Annex I subset
mostly eastern and central Europe, and the former Soviet Union,
which do not have Annex II obligations.
 Non-Annex I Parties: All other, mostly developing countries, which
have fewer obligations and should rely on external support to
manage emissions.
Kyoto Annex II GHG Emission Targets
Change in GHG Emissions, 1990 to 2003
EU GHG Emission Cap-and-Trade
EU Renewable Portfolio Standard
Germany – Leader in Renewables
Annual Installed PV Capacity (MW), 2000-2006

1000
Annual Installed PV Capacity (MW)
900
800
700
Germany
600
Japan
500
USA
400
300 ROW
200
100
0
2000 2001 2002 2003 2004 2005 2006
Germany “Feed-In” Rates for
Renewable Electricity
Munich: 170 kW PV system
Japanese Energy Policy has helped
Drive down cost
Market Transformation Policies
 Regulations
 Economic and Financial Measures
 Energy Planning and Information
 Capacity Building, Partnerships, and
Voluntary Action
U.S. Federal Energy Policy
Regulations
 Product Efficiency Standards
 Production Standards
 Utility Regulation and Market Reform
 Environmental Regulations
 Price Controls
Appliance Efficiency Standards: Reduction of energy usage
by new appliances in year of purchase relative to 1972
Historic and Potential Savings from Appliance
and CAFÉ Efficiency Standards
Energy Savings from Energy Savings from Passenger Vehicle
Appliance Standards CAFÉ and other measures
Renewable Fuel Standard - Biofuels

Million gallons
2005 RFS too conservative
Environmental Regulations
 Level the planning field
 Internalize external environmental and social
costs of fossil fuels and nuclear
 Resulting higher prices for conventional
energy improves the cost-effectiveness of
efficiency improvements and renewables
 Command-and-control with an economic
twist: cap-and-trade or emissions trading
Emissions Trading: How it Works
European Union CO2 Trading Example
Companies A and B both emit 100,000 tons of CO2 per year. They are each allocated
emission allowances for 95,000 tons, leaving them to find ways to cover the shortfall
of 5,000 allowances.
They have a choice between reducing their emissions by 5,000 tons, purchasing 5,000
allowances in the market or taking a position somewhere in between.
In the market, the price of an allowance is € 10 per ton of CO2.
For Company A, cutting its emissions will cost it € 5 per ton, so it decides to do this
because it is cheaper than buying the necessary allowances. It even decides to reduce
its emissions not by 5,000 tons but by 10,000.
Company B is in a different situation. Its reduction costs are € 15 per ton, or higher than
the market price, so it decides to buy allowances instead of reducing emissions.
Company A spends € 50,000 cutting its emissions by 10,000 tons at a cost of € 5 per ton,
but then receives € 50,000 from selling the 5,000 allowances it doesn’t at the market
price of € 10 each. It fully offsets its emission reduction costs by selling allowances.
Without emissions trading, it would have had a net cost of € 25,000 to bear to cut
5,000 tons.
Company B spends € 50,000 on buying 5,000 allowances at a price of €10 each. In the
absence of the flexibility provided by the ETS, it would have had to cut its emissions
by 5,000 tons at a cost of € 75,000.
Effect of 1990 CAA SOx Cap and Trade
program: SO4 Concentrations

1988
The program has a near-perfect record of compliance at costs estimated to
be 57% less than without an emissions trading program, or a 13-year
savings of $20 billion

2003
Economic and Financial Measures
 Tax incentives and disincentives
 Financing Assistance and Risk Insurance
 Research and Development Funding
 Procurement
 Energy Assistance
Subsidies of
2005 Act
2007 Energy Security and Independence Act did little
to change these (it did extend some renewable
credits to 2008).
In the final days of negotiation, Congress failed to
pass a repeal of $28 billion in oil and gas subsidies,
with that revenue steered to efficiency and
renewables
Effect of Federal ITC & PTC on cost
of PV and Wind
Federal R&D Funding: Energy is 1%
of total federal R&D funding
Distribution of Energy R&D Funds
Unfinished business of federal energy
policy
 CAFÉ vehicle efficiency standards finally increased
by 10 mpg in 2007 Act, but is this enough?
 federal energy research, development, and
demonstration funding remains at 1/3 of 1978
levels.
 Shifting energy subsidies from oil & gas industries
which are enjoying multi-billion $ profits to
sustainable energy sources and efficiency.
 Providing a meaningful federal Renewable Portfolio
Standard for electricity generation from wind, solar,
biomass, geothermal, and other sources.
 Establishing a comprehensive program to reduce
GHG emissions, including a cap-and-trade, carbon
tax or similar program for stationary sources and
GHG emission standards for vehicles.

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